Real rates move against USD

Euro holding above $1.20

Chart of the Day

The USD has fallen in the past week against most currencies, and that is partly because real rate differentials have moved against it. US 5-yr/5-yr real rates have fallen in the past week, while in the eurozone they have risen. Some say this trend has further to run as vaccinations improve in the eurozone, whereas they are slowing in the US after an initial strong run.

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Macro

TSA traveler throughput has stalled lately.

Eurozone bank lending conditions to households and firms were tightened in Q2, but at a lesser pace than recently.

Markets

A weak day yesterday: moves in major equity markets yesterday ranged from a 2.0% fall for the FTSE 100 to a 0.1% fall for the Shanghai SE.

Implied volatility has jumped more on the euro stoxx than the Nasdaq, with the latter helped perhaps by the falling real rates.

The defensive utilities and healthcare sector are still doing fairly well this week.

The US tech/financials ratio has fallen in the past month, not normally a good sign for the growth outlook.

Financials have suffered due to lower long-term yields. The US 10-year yield has fallen by 6 bp in the past week, the 5-year has fallen by 4 bp and the 30-year has fallen by 5 bp.

The shift in relative rate differentials above explains why the euro is holding above $1.20.

It wasn’t all bad from a macro perspective, with several commodities doing ok, although oil dropped further and lumber also fell for the first time in many sessions.

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